On May 26 local time, Federal Reserve vice chairman Lael Brainard will attend the hearing in the house finance committee. In her prepared testimony, she talked about the potential benefits and risks of the central bank's digital currency (CBDC)**
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Brennard said that in recent weeks, the price of algorithmic stable currency (UST) has plummeted; As the crypto asset with the largest trading volume, the stable currency (usdt) once fell below its alleged anchored price of US $1. The turbulence in these encrypted financial markets highlights the importance of regulation in this field, and also shows that both the regulatory framework and digital dollar should bring stability to the development of the financial system.
Brenard pointed out that real currency is issued by the central bank and can be exchanged without worrying about liquidity or credit risk. Over the past five years, the share of cash payments in the United States has fallen from 31% to 20%, and the share under the age of 45 is even lower. Therefore, when evaluating the future digital financial system, we should carefully consider how to maintain the public's use of central bank currency, which may be realized by digital analog real currency.
"We have witnessed the risks posed by the proliferation of private money. In the 19th century, fierce competition among private note issuers led to inefficiency, fraud and instability in the U.S. payment system, which ultimately required the government to support a unified currency form." Brennard said that the dominance of private currency will endanger consumer protection and financial stability because of its potential volatility and run risk, and the fragmentation of the U.S. payment system.
Brennard said that in some future scenarios, digital dollars may coexist and complement with stable currencies and Commercial Bank currencies, just as cash coexists with commercial bank currencies at present. At the same time, considering the key role of CBDC in credit provision, monetary policy transmission and payment, we should also pay attention to the potential risks of decentralized banks.
"In some cases, the widely used central bank digital currency can replace the currency of commercial banks and reduce the total amount of deposits in the banking system. Central bank digital currency is also attractive to risk averse users. Therefore, if the Federal Reserve wants to promote central bank digital currency, it can develop functions such as providing interest free CBDC or limiting the amount of CBDC that consumers can hold or transfer." Said Brainard.
Brennard also said that the evolution of international payments and capital flows will also affect the United States' consideration of CBDC. The US dollar is the most widely used currency in international payment and investment. It benefits the United States by reducing the transaction and borrowing costs of American households, businesses and the government. Careful consideration should be given to how the existence of the Federal Reserve's digital dollar will affect the use of the dollar in global payments.
"More broadly, the United States should play a leading role in developing international digital financial transaction standards involving CBDC, including privacy, accessibility, interoperability and security norms." Brennard said it is important to strike a balance between privacy and the prevention of financial crimes, just as commercial banks provide strong privacy protection and strong control to combat money laundering and the financing of terrorism.